What is the 50 30 20 Budget?

It’s probably safe to say that most people wish they had more money. Many of these same people even have a rudimentary concept of budgeting. That is to say that they can balance their checkbooks so that their checks don’t bounce. But talk to them about balance in their finances and that’s another story. Perhaps, you count yourself among them.The good news is budgeting can actually be quite simple. If you follow the 50/30/20 budget, you’ll stay on the right track financially and still have money left over. Here’s how it works.

Paying for the Essentials

According to Mint.com, the 50 portion of the 50/30/20 budget means 50% or more specifically, 50% of your budget. This is the money you should be spending on essentials like food, bills, car expenses, etc.

Room for Your Desires

People hating budgeting because budgets feel so austere. There is no room for a night at the movies or dinner out with friends. With the 50/30/20 budget, that isn’t the case. The Balance points out that most people fail at budgeting because they don’t distinguish their “wants” from their “needs.”However, for the purpose of this budget, the budget site identifies a “need” in your budget that you cannot forego. So while you may want cable, you don’t need it. Your electric bill or your rent aren’t optional. They’re needs not wants. In this budget plan, you get to spend 30% of your income on your wants, once you know the difference between your wants and needs.

Your Savings

The last portion of this budget – the 20 – goes towards your financial goals. You put this money toward debt-reduction, as well as short- and long-term savings.

A Conceptual Note

Although this budget has a suggested structure of 50/30/20, there is some flexibility in it. As Mint.com points out, maybe you live in an area that has expensive rent. However, since you live close to work, you can walk, which offsets the cost of transportation. The idea is that you want to adhere to the spirit of the budget.Additionally, before you can truly work this budget, you need to know how much you spend on everything each month. This is where a money diary comes in. Before you embark on this budget, track your expenditures in a budget journal for a month or so. This includes not only the latte you have every day at your local coffeeshop, but also any regular payments you have on financial instruments like credit cards or car title loans.Once the month is over, put all of your expenses into one of the three budget categories. You’ll probably have to make adjustments if your discretionary spending turned out to be more than 30% of your budget. You may also decide that you want to pay off some of your extra debt to keep your budget truly balanced. In that case, you’ll want to play around with tools like the title loan calculator or your mortgage payoff calculator. Doing this might mean that this budget becomes 50/20/30 for a time, meaning the 30% of the budget is devoted to debt and investments.

Final Thoughts

Unlike some extreme budgeting procedures, which don’t allow you to have any “fun” money, the 50/30/20 budget allows you to have some. Your true living expenses like rent or transportation make up 50% of your budget. Thirty percent of your budget goes toward that night out on the town or the once-in-a-lifetime concert you want to see. The last part of your budget – the 20% – goes toward your investments and your debt.The beauty of a budget like this is that it’s easier to stick to because you do get to enjoy some of your money, rather than spending it all on the bare necessities or paying off your debt. It allows you to have balance in your life, while still giving you the income you need to pay your bills.

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